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Martin Tillier

Martin Tillier

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Is This A Buy Signal For Crude Oil Futures?

A basic review of the chart for oil futures (CL) suggests that crude is about to take off. Whether the next move from here is up or down, providing a critical level holds in one case or is broken in another, it will send a strong technical buy signal.

(Click to enlarge)

The pattern concerned is basically a flat period followed by a dip, a recovery to the same level and then another sideways move. It is known as a teacup and is similar to an inverse head and shoulders formation, but without the pronounced shoulders formed by two dips during the periods of sideways action. Still, the theory is the same as to why it presages a run up. It indicates a failed move down that should discourage any aggressive selling from here.

It is not, however, confirmed as a buy signal until one of two things happens. Either we move on up through the high of the first plateau, which in this case is the $54.55 achieved on December 4th, or there is a second failed try at the roughly $50 base of the two “shoulders”. Either one would indicate a move higher, so while there is no real signal yet, it is very likely that there will be one soon.

As any trader will tell you though, technical analysis has its limits. Previous price action and chart patterns can be useful in the short term, but any signal they send is only valid as long as fundamental conditions stay essentially the same. That means that no matter how strong a signal the chart is sending, a review…

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